The Blog of International Judicial Assistance | By Ted Folkman of Murphy & King

Case of the Day: In re Activision Shareholder Litigation

Posted on June 12, 2014

The case of the day is In re Activision Blizzard, Inc. Stockholder Litigation (Del. Ch. 2014). The case was a classic shareholder derivative action. After a complicated restructuring transaction between Activision and Vivendi, shareholders of Activision sued, claiming that Activision’s directors and Vivendi itself breached fiduciary duties to Activision by setting a price for the sale of Activision shares that enriched Vivendi and two Activision executives at the expense of the shareholders. The shareholders sought to take discovery from Vivendi and some of its directors (who were named as defendants, too), and the Vivendi defendants refused to the extent the documents requested were located in France, on the grounds that discovery had to proceed under the Hague Evidence Convention. They also argued that their depositions should occur in France rather than in Delaware. The shareholders moved to compel.
The court gave a good history of the blocking statute, the Christopher X case and the French position on Article 23 of the Evidence Convention, all of which is more or less familiar.

This was, apparently, the first time the Chancery Court had considered the interaction of a blocking statute, the Convention, and the ordinary rules of civil procedure. The court followed a pretty orthodox Aerospatiale analysis, rejecting outright Vivendi’s argument that discovery had to take place in accordance with the Convention and the blocking statute. Application of the Aerospatiale factors seemed to favor the Delaware rules of discovery over the Convention. First, the Vivendi defendants were key players in the transaction that led to the dispute. The chancellor thought it likely that they would have lots of highly pertinent corespondence, and that the documents could only be obtained in France. Second, the discovery requests were sufficiently narrow and tailored. Vivendi agreed that as drafted, they were sufficiently narrow to pass muster under France’s Article 23 declaration. Vivendi probably made this concession in order to make application of the Convention more likely, but here it had the opposite effect. Third, it wasn’t clear whether the information sought originated in the United States, and if so, how much of it originated here and how much originated in France. Thus the geographic source of the evidence did not weigh in either direction. Fourth, it was unclear that the Convention would provide an adequate means of obtaining the evidence, particularly in light of the time it might take to receive evidence under the Convention relative to the time remaining under the court’s tracking order. The court was skeptical of Vivendi’s assertion that it might take only a few weeks to obtain documents and a few months to take testimony. Parenthetically, a US court’s need for docket management is often a key driver of decisions to apply US procedural law rather than the Convention. Last, Delaware has a strong interest in providing a forum for the resolution of internal disputes regarding Delaware corporations. The Vivendi directors, who were also Activision directors, had by virtue of their service with Activision consented to the jurisdiction of the Delaware courts, as had Vivendi itself, by contract. “This case is precisely the type of litigation in which Delaware has a paramount interest.” In an interesting passage, the court discounted France’s interest in application of the blocking statute:

As currently drafted, the Blocking Statute reflects France‘s preference for its own methods of litigation. Every country naturally prefers its own methods of litigation; otherwise it would change them. The United States and Delaware prefer their own methods of litigation and have an interest in using them. The competing interests offset, which prevents an interest in one‘s own system of litigation from being used effectively in a balancing test. Under Sections 441 and 442 of the Restatement, a tie goes to the forum.

The court also noted Vivendi’s previous history of suing in the US courts.

But although the factors pointed towards application of US law, the court ultimately pulled its punches. The judge ordered the parties to cooperate on submission of a letter of request for documentary evidence under the Convention on a very short timetable. If the French authorities do not authorize production of the requested documents, then Vivendi would be required to produce them under US law by a set date. On the other hand, the court held that depositions of those Vivendi defendants who were directors of Activision would occur in the United States. “By accepting a directorship in a Delaware corporation, the Vivendi Directors agreed to the jurisdiction of the State of Delaware, including for purposes of discovery. This court has undisputed authority to compel a named defendant, over whom the court has personal jurisdiction, to appear at trial. The same authority extends to compelling an appearance for purposes of a pre-trial deposition.” As to other Vivendi personnel within the scope of the court’s power of compulsion (i.e., managing officers, directors, etc., whether or not they are named as parties), the court ordered Vivendi to try to seek French approval for depositions in France to be conducted by US counsel. If such permission can’t be obtained, the court said it would consider the depositions on a case-by-case basis.

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